Ever wonder how business loans and corporate credit work?
How do some business owners get better terms, interest rates, and credit card offers than others?
Well, there’s a number that you need to know…
It’s called your PAYDEX score.
Just like a consumer’s creditworthiness hinges on a FICO score, a business’s creditworthiness is determined by a scoring system as well.
One business credit is the PAYDEX score.
It’s important for any business owners attempting to access financing to understand how the PAYDEX score can help, or hurt their chances of qualifying for good business financing.
What is the D&B PAYDEX score?
PAYDEX is a business credit score that’s generated by Dun & Bradstreet (D&B).
It looks for one thing…
Does the business owner pay their bills on time?
The score ranges from 1-100, and below you can see a breakdown of how that score is determined.
You need 4 tradelines to have an open PAYDEX score.
How is my PAYDEX score calculated?
The scoring module used by Dun and Bradstreet accumulates the last 12 months of rolling business credit data.
Each supplier or vendor (whomever the business owes money to) is considered a “payment” experience.
The PAYDEX score is dollar weighted.
Meaning the more liability you have with one vendor will affect your PAYDEX score more than any lower dollar liabilities.
Your transactions with your Autodialing vendor, with whom you spend thousands of dollars monthly, has a greater impact on your PAYDEX score than your office cleaning company that you spend $500/month on.
Here’s a chart to break down how payments (in timeliness) and PAYDEX score relate:
Also, it’s important to note that simply paying on time doesn’t get you a perfect score.
Yup, you need to pay early to get the best score.
According to this, you need to pay 30 days early to get a perfect PAYDEX score on all your vendor accounts.
Who uses PAYDEX to grade my business?
PAYDEX is primarily used by vendors and suppliers.
They’ll use this number to judge your business when determining what terms to extend on trade credit (e.g., net 30, net 60, etc.)
Having better term limits can drastically affect cashflow of the business.
As one example imagine having 30 day terms on a $100,000 liability versus a 90 day term when it takes a few weeks to start generating revenue on Phase 1 of your project.
How can I improve my D&B PAYDEX score?
You really want your PAYDEX north of 75.
Since your PAYDEX score is based entirely on the promptness of your payments to vendors and suppliers, the only way to improve it is to make sure you are paying on time.
Remember: paying on time will only earn you a score of 80.
For a perfect PAYDEX score of 100, you need to pay early.
Again maintain at least four open trade accounts.
That’s the minimum amount D&B requires to generate a Paydex score.
Keep in mind that having no PAYDEX score is just as bad as having a low one.
PAYDEX is a score supplier that vendors use when determining what terms to offer you credit on.
You need to have 4 accounts to have a PAYDEX number, and you want that number to be higher than 75.
Paying before the balance is due is the only way to get higher than a 75.
All business owners need to consider their PAYDEX score when growing as better terms on your money while impact the cashflow and operations of a growing business.